Corporations, Come Clean on Contributions

Last year's controversy over corporations' political contributions may benefit shareholders in the long run. Bowing to pressure from investors unhappy about the candidates and causes their companies have chosen to support, more businesses may become more open and honest about where they're directing their political donations -- or face a world of hurt.

Big donations make big targetsLast year, Target (NYSE: TGT) found itself in the bulls-eye of controversy related to its contributions to MN Forward, a conservative group that backed a political candidate with a track record of opposing gay rights. Customers, employees, and consumer groups fomented a fiery backlash, threatening to boycott the retailer.

Activist shareholders like Trillium Asset Management and Walden Asset Management joined in the furor, filing resolutions at Target, Best Buy (NYSE: BBY) , 3M (NYSE: MMM) , and Pentair (NYSE: PNR) , all of which made large donations to MN Forward.

In response, Target has changed its policy on political contributions. The company still isn't required to disclose every donation; gifts to trade associations and political groups remain notably exempt. However, the company's new rules do block trade groups from using Target's donations for political candidates or any other purpose that might influence elections.

Pleased that both Target and Best Buy made changes that satisfied several of their major concerns, the activist investors have since withdrawn their resolutions at those companies. The activists also report that 3M has been open to discussion, but hasn't changed its policies yet; shareholders will vote on the contribution question at its next annual meeting. Pentair has made no changes, and proved much less responsive than 3M, according to Trillium, so activists' efforts at that company continue.

A growing trend for transparencyInside Investor Relations reported that last year, shareholder resolutions related to contribution disclosure boasted an average of 30% shareholder support; Coventry Health Care (NYSE: CVH) , CVS Caremark (NYSE: CVS) , and Sprint Nextel (NYSE: S) all recorded more than 40% of votes in favor of disclosure. It's not difficult to imagine that such votes could even more significantly favor disclosure this year.

Mutual funds are the undisputed heavyweights when it comes to shareholder votes, and they're rapidly shedding any opposition to such disclosures. According to The Center for Political Accountability, in 2010, only a minority of mutual funds voted against shareholder resolutions pertaining to transparency and disclosure of political contributions; 53% of mainstream mutual funds either voted "for" or abstained on the Center's model political disclosure resolution.

Man up and admit itWhen corporations make hefty political donations, they create the appearance -- if not the reality -- of angling for advantages over their rivals by attempting to sway regulatory policy. That's not only dirty pool in a supposedly free market, but also a great way to risk angering employees and customers on political grounds. Investors should be similarly displeased to see their companies spending shareholder cash mucking around in the political sandbox.

Still, even if corporations can't stay out of politics, the least they can do is admit where they stand, and accept the consequences.

Check back atFool.comevery Wednesday and Friday for Alyce Lomax's columns on corporate governance.

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"However, the company's new rules do block trade groups from using Target's donations for political candidates or any other purpose that might influence elections."

The trouble with this is that they could just take Target's money and use it for something more palatable and take the money they had been spending on that and reallocate it to elections. Donations are fungible. Regardless of how they get earmarked, it's all usually one pool of capital and you can just find the most appealing thing to a donor and say you're using their money for that.